S.D. MARKET FOR RETAIL SPACE TOPS MOST CITIES’

County’s per-person square footage and vacancy rates low

Storefronts seem to go vacant frequently in many local shopping centers, but San Diego is weathering the shift to e-commerce better than many cities.

That’s one of the conclusions CoStar Group and its analysts found in a 2012 roundup of the state of retail space nationally.

San Diego ranked second, just behind Los Angeles, in having the lowest amount of retail space per person — 41.3 square feet — out of 19 metro areas considered.

Atlanta had the highest ratio of 59.5 square feet per person, and L.A. had the lowest, 38 square feet. The national average was 50.3.

“That’s one of the things that really jumped out when we look at the findings,” said Sam Tenenbaum, a Boston-based CoStar analyst responsible for monitoring San Diego. “It’s a great thing for tenants. It means San Diego has a structurally low vacancy rate compared to the national average.”

The fourth quarter vacancy for the county was set at 4.8 percent, compared with 6.9 percent nationally.

Tenenbaum said the explanation is that developers do not build as many retail centers as in other places, and that lowers the density of centers. And that owes itself to the ease with which developers get approval to build.

“If you go to Dallas or Houston, they have booming economies, personal incomes are rising, retail sales are jumping,” he said. “But there are a lot of ‘dead’ malls there. The reason is, it’s easy to build a new mall. Suddenly the only mall is not so fancy anymore. We’re not seeing so much of that in San Diego. Certainly, you have some dead mall stuff and unproductive stuff. But by and large, it’s much less prevalent.”

Ryan McCullough, a CoStar analyst who tracks national trends, said San Diego is similar to Boston in demographics and development standards.

“What’s interesting is the supply in these types of markets is steady, not ‘lumpy,’ ” McCullough said.

When development ground to a halt in 2007, San Diego, Boston, San Jose and other high-tech centers fell back, but not as severely as others.

Now with the slow recovery in San Diego’s local economy producing at least a bump in job counts, Ryan said San Diego should now be looking for some increase in retail construction.

So far, the numbers do show a slight increase. In 2010, new retail space added to the local market was 332,111 square feet; in 2011, 351,719 square feet; and in 2012, 462,782 square feet. The total amount of retail space under construction at the end of 2012 was 224,150 square feet.

Tenenbaum said the growth is occurring in spaces like groceries, drugstores and health care — which are spaces not easily replaced by online shopping.

Technology, music and entertainment retail spaces, by contrast, are on the decline.

One of the trends nationally, and presumably locally, is the increasing share of retail space devoted to food and beverage operations.

In 2006, 11.6 percent of all retail space nationally was devoted to restaurants, fast-food outlets and drinking establishments.

Last year, the percentage had grown to 19.5 percent. No figures are available at the metro level.

San Diego retailing may benefit from two factors not present in many other markets.

One is the steady, though slow, rise in population, which is generating more demand for housing and, therefore, more retail space to serve those new households.

The other rare characteristic among major American metro areas is San Diego’s international border location.

“From a San Diego perspective, I think we’re right at the cusp of rent growth in the border market,” Tenenbaum said. “It’s had positive demand for the last two years, though some quarters are better than others. We’ve had consistent growth, but there hasn’t been rent growth in the border market. We would expect that going forward to be better than the national average.”